Settlement Agreement Negotiations – 3 Things You May Not Have Considered

If you’re negotiating a settlement agreement, the most obvious need is to maximise the financial amount. In a previous article, I’ve written about how much money you should expect.

However, there are other items that could make the settlement agreement more attractive to you as the employee and may not cost the employer anything.

Here are some things you may not have thought about asking for.

A Reference

There is no legal obligation on an employer to provide a reference. If they do so, it has to be fair and accurate. Most employers are only willing to provide a basic reference, which simply states your start date, finish date and job title.

However, if you’re negotiating a settlement agreement, you can ask your employer for a more detailed reference as part of the deal. You may even want to suggest that you write the reference for them to endorse. That way, it’s less work for them and a great benefit to you.

Improving the tax efficiency of the settlement payment

There are a number of factors that determine which payments in a settlement agreement are taxable and which are tax free. You may want to read this article which explains more.

The most obvious ways to save tax are:

add the amount of the payment in lieu of notice into the termination payment and call it compensation for not working your notice period (this only works if you don’t have a contractual right to the payment in lieu of notice)

the balance over £30,000 can be paid into your pension fund

postpone some of the payments until the next tax year if you’re likely to be paying tax at a lower rate in that year

None of the above approaches would lead to your employer paying you any more money but they would result in you receiving more money.

Some payments (such as holiday pay and salary) must be taxed in full and we would not recommend trying to get round that.

Release from Post-Termination Restrictions

If your employment contract contains clauses that restrict you after you leave, this could cause you a few problems.

For example, it may say that you can’t work for a competitor or deal with customers of your (soon to be) former employer.

This could really hold you back in pursuing your career, so you may want to negotiate a release from these restrictions. You could, for example, agree that you will be allowed to work for a competitor, as long as you don’t poach any customers.

That way, you can pursue your career without damaging your employer’s business.